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Boeing’s McNerney returns fire in tanker fight against EADS

Boeing Chairman, President and Chief Executive Jim McNerney on Wednesday fired back at EADS North America, which issued the first shots in a renewed Air Force aerial refueling tanker battle a day earlier.

In announcing its intention to bid on the tanker Tuesday, EADS North America Chairman Ralph D. Crosby Jr. said the existing EADS tanker for the Royal Australian Air Force was very close to what his company would offer to the U.S. Air Force, while Boeing’s NewGen tanker “really doesn’t exist in any material form.”

Referring to the EADS North America KC-45 tanker and Wednesday, McNerney said: “I’m sure they have a substantial amount of development work to do themselves.

“There is no question that there’s some development work both on the airplane and integrating the military systems,” he continued. “But I think one of the values of doing it the way we’re doing it is, we’ve got a work force in Everett that has lived through many, many configurations and design changes on the 767, they understand the airplane, and I think at the end of the day that may offset some of the development issues that both of us face, and I like betting on our guys in that environment.”

McNerney made his comments during a conference call to discuss Boeing’s first-quarter results, which showed lower profits, thanks to lower deliveries. But McNerney said the industry is picking up.

“The financial outlook for the world’s airlines has improved noticeably since last quarter,” he said. “Having aggressively cut costs and capacity during the downturn, many of our airline customers are positioning for this economic recovery by ensuring that they have the most efficient airplanes with which to compete. While some customers continue to defer or cancel orders, we are seeing growing demand from other customers for those delivery slots.”

Deferrals remained about the same in the first quarter as the previous quarter, while “the rate of accelerations we processed was notably higher than average,” McNerney said. “Despite some uncertainties that remain in our business environment, we are in a fundamentally solid position, and our opportunities are growing, particularly in the commercial market, as the world regains its economic footing.”

Another notable bit of news from the call was that Boeing might not go ahead with the 787-10 Dreamliner variant (see previous news here).

“The way it looks to us now is the (787)-9 capability is going to be very good and that the kind of improvements we think we can make in the 777, both the smaller and larger versions, may be enough to handle the old (787)-10 mission, between the two of them,” McNerney said. “We’re not sure yet, but that question is something that we’re debating and modeling right now. It may be we need a (787)-10, but we’re seeing capability in the (787)-9 that is substantial, and the extent to which we really redo the 777, which is a real option, the improvements particularly the weight-to-strength kind of improvements with carbon fiber and what we think we can get from the engine, are substantial.”

Here are other notes from the call.

On the 787:

“We are seeing very few issues … and we’re seeing a pretty methodical step-through of the things that we need to demonstrate,” McNerney said. “The most difficult, obviously, were flutter testing, ground effects, the static test on the wing. These are very fundamental tests that test the integrity of the design early.”

Boeing still expects first delivery by the end of the year and, while it used up some of its contingency in later-than-expected expanded type-inspection authorization, it still has a month to month and a half of contingency “and we’re at a run rate now that we hope will continue to extend the contingency we have left,” McNerney said.

The remaining two flight-test 787s (the two with General Electric engines) are “expected to be in the air by the end of this quarter.”

Asked about the 787’s performance, McNerney said: “Are we confident that we can meet the mission that we’ve promised our customers as we work off some of the weight? The answer is yes.”

The second 787 assembly site, in North Charleston, S.C., is “slightly ahead of schedule,” McNerney said.

“Although we have made changes to improve handling characteristics, we have not encountered any major issues in flight testing,” McNerney said. “On the 747-8 Intercontinental (passenger version), we are nearing completion of engineering releases and expect to begin major assembly mid year.”

First 747-8 Freighter delivery is still expected by the end of the year, with first 747-8 Intercontinental delivery in the fourth quarter of 2011.

On the 737:

“We anticipate a decision this quarter on a possible rate increase from our current 737 production level of about 31 airplanes per month,” McNerney said. “We’re looking at meaningful increases.”

On 777 orders, and a planned acceleration of a production rate increase to this year:

“There are some unannounced orders … and there are some ongoing discussions that we have a high degree of confidence are going to turn into orders,” McNerney said. “We are comfortable that the demand will support the moving of the rate up a year.”

Note that Boeing recently listed a new unnamed customer order for 12 777s on its orders website.

On Defense:

Despite continued pressure of defense spending, the fiscal year 2010 budget and 2011 request “continue strong support for the majority of our programs,” McNerney said. “We also continue to see strong demand internationally for our core defense and services products.”

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